Hill Industries had sales in 2016 of $6,960,000 and gross profit of $1,187,000.

Question

Hill Industries had sales in 2016 of $6,960,000 and gross profit of $1,187,000. Management is considering two alternative budget plans to increase its gross profit in 2017.

Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2016 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 110,000 units.

At the end of 2016, Hill has 41,000 units of inventory on hand. If Plan A is accepted, the 2017 ending inventory should be equal to 5% of the 2017 sales. If Plan B is accepted, the ending inventory should be equal to 68,000 units. Each unit produced will cost $1.80 in direct labor, $1.40 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2017 should be $1,883,000.

Prepare a production budget for 2017 under each plan HILL INDUSTRIES Production Budget For the Year Ending December 31, 2017 Plan A Plan B Expected Unit Sales 704700 814700 Add v Desired Ending Finished Goods Units 35235 68000 Total Pounds Needed for Production ? 739935 882700 Less Beginning Direct Materials 41000 41000 Required Production Units 698935 841700 LINK TO TEXT Your answer is incorrect. Try again Compute the production cost per unit under each plan. (Round answers to 2 decimal places, e.g. 1.25.) Plan A Plan B Production cost per unit 7.09 6.64 LINK TO TEXT Your answer is incorrect. Try again Compute the gross profit under each plan Plan A Plan B Gross Profit 1187000 1187000 Which plan should be accepted? Plan AY

Explanation / Answer

Answers

Sales

$             69,60,000.00

SP per unit

$                             8.00

No. of units sold

870,000

Plan A

Plan B

Expected Unit Sales

783000 [870000 – 10%]

980000 [870000 + 110000]

Add: Desired ending finished goods unit

39150

68000

Total Finished goods requirement

822150

1048000

Less: Beginning Finished Goods Unit

41000

41000

Required Production Units

781150

1007000

Plan A

Plan B

Expected Unit Sales

783000

980000

Unit Selling Price

$                                    8.40

$                                          7.50

Total Sales

$                   65,77,200.00

$                          73,50,000.00

Plan A

Plan B

Fixed Overheads

$                   18,83,000.00

$                          18,83,000.00

Units produced

781150

1007000

Fixed cost per unit

$                                    2.41

$                                          1.87

Direct labor

$                                    1.80

$                                          1.80

Direct material

$                                    1.40

$                                          1.40

Variable overhead

$                                    1.20

$                                          1.20

Production cost per unit

$                                    6.81

$                                          6.27

Plan A

Plan B

Sales

$                   65,77,200.00

$                          73,50,000.00

Cost of Goods Sold [Production cost per unit x Sold units]

$                   53,32,230.00

$                          61,44,600.00

Gross Profits

$                   12,44,970.00

$                          12,05,400.00

Sales

$             69,60,000.00

SP per unit

$                             8.00

No. of units sold

870,000

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